It was a wild Wednesday session following the unexpected rate cut from the Bank of Canada and the news that Greek parliament had approved the latest bailout package. News that Chairman Poloz and his colleagues at the Bank of Canada would cut rates by 25 bps pushed the Loonie lower, testing levels not seen since the depths of the Great Recession in 2009. For a while, this news paced markets until it was revealed in a vote of 229-64 that Greek Parliament had approved the new bailout measures. This result edged the single currency lower another 0.5% as protests in Greece ramped up again. While the news of this “agreekment” seems positive on the surface, markets should expect a lot of protest from the Greek people as their economy is forced to endure more austerity. This morning, the European Central Bank kept their main rate firm at 0.50% and Mr. Draghi should take many questions at his press conference, beginning shortly.
Turning back to the Canada for a moment, this was the second rate cut this year, as the main interest rate now remains at 0.50%. Mr. Poloz and company have lowered growth estimates considerably from April projections and “real GDP is now projected to have contracted modestly in the first half of the year,” the bank said in its statement. The Canadian dollar was sold hard after this surprise cut as market remained split on any such action. The Bank of Canada is forecasting a modest rebound in the second half of 2015 but GDP growth for all of 2015 is only anticipated to reach 1.1%, down from expectations of 1.9%. These depressed projections have increased the downside risks to inflation, hastened by “downgrades of business-investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.” The Loonie remains a sell on any rally and it should be expected that certain psychological levels on USDCAD’s topside will be broken sooner rather than later.
Just before the sunset in North America, news broke that Greek Parliament had approved the last minute bailout plan, staving off total economic collapse – for now. Greek MPs approved the tough measures, required to enable an €86 billion deal to go through. This new legislation includes tax rises and an increase in the retirement age. One week after calling a referendum and placing the onus on his constituents, PM Tsipras urged MPs to approve this latest, worse deal despite the fact he did not believe in it. This should weigh on EURUSD over the next few weeks and months as political uncertainty just went from 0 to 60 and newsrooms around the world can look forward to fresh protests and riot police taking to the streets of Athens. As we got to print this morning, the euro is testing its lowest levels since May.
Here in the US, Janet Yellen paced Wednesday’smarkets with her address to the House Financial services Committee. It was expected that Ms. Yellen would garner most of the attention before Canadian and Greek events over-shadowed her testimony. Ms. Yellen reiterated that the Federal Reserve expects rates to rise “at some point this year” as her prepared remarks offered an upbeat assessment of the US economy. Pointing to things such as increased consumer spending and an improving labor market, Ms. Yellen paved the way for lifting rates for the first time in nearly ten years. Ms. Yellen will be addressing the Senate Chamber today but most of her remarks will remain consistent toWednesday’s address. Thursday means jobless claims and it is expected that 285k Americans filed first time unemployment claims for the week ending July 10th. US Inflation data rounds out the weektomorrow but all eyes shall remain on the development coming out of Greece.
Further reading:
Draghi announces a raise in Greek ELA, supports debt relief – EUR/USD fades bounce
GBP/USD: Targeting The 76.4% Fibo Of Recent Down Move – SocGen
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